In just over three months, shares of gene-sequencing leader Illumina Inc. (ILMN, Financial) have climbed nearly 40% to about $517, a price some analysts think doesn’t leave the company much headroom.
Modern Readers reported Barclays recently lifted their target price on the San Diego-based company from $355 to just $365, giving it an underweight rating. Earlier, SVB Leerink reissued a buy rating on shares of Illumina, while Canaccord Genuity lifted their target price from $515 to $555 and gave the company a buy rating in a research note on Aug. 9.
Finally, Piper Sandler lifted their target price on Illumina from $510 to $560 and gave the company an overweight rating in a research note on Aug. 6. Three equities research analysts have given the stock a sell rating, seven have issued a hold rating and seven have prescribed a buy rating to the company. The stock currently has a consensus rating of "hold" and an average price target of $395.
These estimates could prove to be conservative if Illumina can push through a merger with the Menlo Park, California-based cancer detection company Grail, according to equity analyst John Kehoe, who said if the merger goes through it would have massive upside.
He said it “would increase Illumina’s portfolio and their total addressable market. It would grant them firm control of the next-generation sequencing oncology industry for the foreseeable future, which is expected to grow at a CAGR of 27% to $75 billion in 2035.” Kehoe added that Illumina also has plans to “leverage its global scale, manufacturing and clinical capabilities to support Grail’s commercialization efforts,” which would further increase the total addressable market for these products.
Right now, the merger is no sure thing given it’s been halted by the Federal Trade Commission, which has filed an administrative complaint and authorized a federal court lawsuit. The FTC claims this potential acquisition would reduce innovation and efforts by other cancer-test makers. On the heels of the FTC’s original complaint and lawsuit, the European Commission also launched an investigation into the acquisition. Illumina then sued the EC to halt their investigation because Grail has no business activity in Europe.
Even if the merger is nixed, Illumina is in great shape. The company dominates the NGS market, which is projected to grow at a compound annual rate of more than 19% until 2026. It's also on track to hit well over $4 billion in sales this year after a bang-up first half when it booked more than $2 billion in revenue.
“Illumina’s record second-quarter revenue exceeded expectations across all regions,” CEO Francis deSouza said. “This demonstrates the strength of our business led by clinical applications, including oncology and genetic disease testing, as well as research.”
Also working in Illumina's favor is a strong balance sheet. As pointed out by Simply Wall Street, the company's total liabilities are just about equal to its liquid assets. Also, over the past three years, the company produced more free cash flow than earnings before income and taxes. “There's nothing better than incoming cash when it comes to staying in your lenders' good graces,” emphasized the article.
Investors who like Illumina but want to spread their risk should consider one of the 200 exchange-traded funds holding a total of 13 million of the company’s shares. The biggest is the Invesco QQQ Trust (QQQ, Financial), with approximately 1.9 million shares. The ETF with the highest allocation to Illumina stock is Invesco Dynamic Biotechnology & Genome ETF (PBE, Financial), with a portfolio weight of more than 6.16%.
